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World Bank slashes East Asia growth forecast

The World Bank has cut its economic growth projections for developing countries in East Asia and the Pacific, citing a sharper downturn in China and potential contagion from the expected lift-off of US interest rates.

The World Bank on Monday trimmed its growth forecast for the region - which also includes China - to 6.5 percent in 2015 and 6.4 percent in 2016, down from 6.8 percent growth in 2014. Its previous forecast in April was 6.7 percent for both 2015 and 2016.

"The baseline scenario for regional growth is subject to a greater-than-usual degree of uncertainty, and risks are weighted to the downside," the Washington-based lender said in its latest East Asia and Pacific Economic Update report.

The bank said the downward revisions to forecasts mainly reflect a moderate slowdown in China's economy, which it sees growing 6.9 percent in 2015 and 6.7 percent in 2016, down from 7.3 percent in 2014.

To overcome the risks posed by China's economic slowdown and a hike in US interest rates, the bank called on the countries to adopt "prudent macro-economic management" and undertake structural reforms.

The bank, however, allayed concerns of a "hard landing" in China, saying that the world's second-biggest economy has "sufficient policy buffers" to address the risks to its economy and prevent a sharp slowdown.

Currency risks

Growth in developing East Asia excluding China is expected to hold steady in 2015 at 4.6 percent before accelerating to 4.9 percent in 2016, the World Bank said. Those were down from previous forecasts of 5.1 percent growth in 2015 and 5.4 percent in 2016.

The bank cautioned the countries in the region about exchange rate risks, in view of the widely-expected "lift-off" in US interest rates by the end of this year.

Expectations of a rate hike have already led to currency volatility, and the bank noted that further declines in Asian currencies against the dollar could cause balance sheet strains in countries with significant dollar-denominated debt.

"Stress may arise whenever individual firms and sectors suffer from a significant concentration of liabilities," the World Bank said, adding that such risks are a special concern in Indonesia, Malaysia, Thailand and Vietnam.